Pembina offers to buy Inter Pipeline in friendly $8.3B takeover

Pembina Pipeline Corp. has signed a friendly deal to buy Inter Pipeline Ltd. for $8.3 billion in stock, surpassing the hostile bid by Brookfield Infrastructure Partners.

Under the deal, Inter Pipeline shareholders will receive half a Pembina share for each share of Inter Pipeline that they own.

The offer is valued at $19.45 per Inter Pipeline share based on the closing price of Pembina shares on Monday. Inter Pipeline shares closed at $17.55 but increased $1.53 or 8.7 per cent at $19.08 in afternoon trading on the Toronto Stock Exchange

The deal tops the offer made by Brookfield that was valued at $16.50 per share.

In March, CEO Chris Bayle said the Brookfield bid undervalued their business.

"After a comprehensive review of strategic alternatives by the special committee of the board of directors of Inter Pipeline, it was evident that a combination with Pembina offered compelling value for Inter Pipeline shareholders in the short-term," said Margaret McKenzie, Inter Pipeline's chairwoman.

She added that the deal offers long-term benefits from the completion of the multibillion-dollar purchase of Heartland Petrochemical Complex.

The company said the complex is expected to generate $1.1 billion to $1.4 billion of adjusted cash flow from operating activities after dividends annually once it is in full service. It is expected to start service by 2022.

The boards of Pembina and Inter Pipeline have unanimously approved the deal which also requires approval by at least two-thirds of Inter Pipeline shareholders. A majority vote by Pembina shareholders is also needed.

Existing Pembina shareholders are expected to own 72 per cent of the combined company, while Inter Pipeline shareholders will hold 28 per cent.

"The transaction is highly strategic for both Pembina and Inter Pipeline, providing clear visibility to creating long-term sustainable value for our respective shareholders," said Pembina chairman Randy Findlay in a statement.

"It represents a compelling opportunity to continue building on our respective low-risk, long-term, fee-for-service business model, expand our customer service offerings, and create significant value."